Phil Grande

The Herd Mentality

Always bet against the “herd” and you will win. The Gold “herd” has shifted to the same side of the boat, and when the financial wave of destruction hits the boat, it will be swamped, drowning the “herd”. The wave is coming. When will it happen? It’s hard enough to time the market, never mind a certain wave. I will have to pass on the wave speculation, but it’s enough to know it will happen.

And talk about a “herd” mentality… More money has recently flowed into U.S. bond mutual funds than in the previous 10 years combined. As of June 2010, more money flowed into bond funds than into stock funds for the last 30 months in a row. This means not only are interest rates low because global governments are stimulating the world economy, but the “herd” of retail investors are dumping stocks and buying bonds. Remember, the “herd” is always wrong.

The true sign of a professional investor is the ability to stay above the hype. One must be able to see through the cheerleading of, for example, CNBC’s Larry Kudlow, and their other bubble master hosts and guests, who have mastered the art of reading a teleprompter, since the skill of picking good stocks continues to elude them. A good example of the hype is when Kudlow tried to embellish the retail numbers, only to be embarrassed when his own guest said “Larry the increase in revenue over the same quarter last year was so small, it was the equivalent of about 2 more pair of socks, give me a break Larry!” .Kudlow grumbled under his breath then changed the subject.

Going all the way back to the most infamous “popping” of the tulip bubble of the 1600’s, to the olive oil bubble of the 1920’s, to the tech bubble of 2000, and to the real estate and lending bubble of 2008, the “herd” has always been told, “It’s different this time.” The “herd” hears this again today, “it’s different this time” with the help of the bubble masters at CNBC.

Prices continue to keep rising until they just can’t rise anymore, and, like all bubbles, they are not sustainable. The “herd” always leverages themselves to buy even more, thus, going deeper into debt. They buy on margins supported by fundamentalists provided by hosts of CNBC and their guests. Instead of taking the role as an activist investor who reads charts, the “herd” relies on 3 month old information.

Phil Grande

Phil Grande is the host and creator of the Phil's Gang Radio Show®. He is the man who coined the phrase, "I'm going to tell you what Wall Street doesn't want you to know!"